Adam Smith famously described “the invisible hand” — how selfish, individual efforts work through free markets to benefit society generally. Fast-forward a couple hundred years, and see how Federal Reserve Chairman Ben Bernanke works through the banking system to screw over the young and the poor to benefit a much smaller segment of society. I call this “the invisible bitch-slap.” Here it is in action:

Two million Americans over the age of 30 now live with a housemate or roommate, and shared households make up 18 percent of U.S. households — a 17 percent increase since 2007.

One group of women sold their homes and bought a house together in Mount Lebanon, Pa., after they all got divorced.

“It made amazing economic sense,” said one of the women, Jean McQuillin.

Why are grownups with real jobs forced to live together? Why can’t they afford their own homes? Why does the extended adolescence of virtual dorm life make “amazing economic sense”?

Because housing prices, once inflated during the bubble, weren’t allowed to ever find their natural floor. An over-produced asset, which should have become cheap, is instead increasingly unaffordable.

Bernanke has done everything he can to re-inflate — to re-bubble-ize — the market for single-family homes. The idea is that if Bernanke can re-ignite the housing market, he’ll re-ignite the entire economy. Maybe that’s not such a bad idea, if you’re already sold on the whole central planning thing. But he’s going about it all wrong.

Despite the Crash of 2007, home ownership is still at near-record highs. Pretty much everybody who can afford and desires a home already has one. So if you want to bring new people into the market, prices have to come down. But Bernanke won’t let that happen.

Why not?

It’s called “the wealth effect.” Bernanke believes that if you make the (relatively) rich feel rich enough, they’ll spend more money. Then the increase in demand will trickle down to everybody else, in the form of new greeter jobs at Wal-Mart. That’s why Bernanke has also been propping up the equities markets, too. If stock prices are high, people will cash some out and buy things that will create jobs. The fact that most of those jobs are in East Asia seems to have escaped him.

You might remember that Democrats used to deride President Reagan’s “trickle down” economic policy. The way Reagan’s worked was to cut marginal tax rates and to deregulate the economy, so that people would have good incentives to start new businesses or expand existing ones — right here in the good ol’ US of A. President Obama has taxed, promised to tax, or threatened to tax the bejeebus out of most everything. He’s also unleashed a tidal wave of new regulations, mandates, and expenses unseen since the Great Depression. In the first full year of Reagan’s recovery, real incomes shot up more than seven percent, and American job creation soared on the back of a swelling GDP. After nearly four years of “recovery,” Obama hasn’t come close.

So maybe the argument could be made that Bernanke is making the best plays he can with a very weak hand.

Maybe that argument could be made.

But then I look at Bernanke’s big play, and I just scratch my head in a depressed kind of wonder. The thinking is that in a country desperately trying to get out from under too much debt, we’ll all get rich again if Bernanke can just make additional borrowing cheap enough.

This article recounts what I've always called the Democratic version of the trickle-down economics. They tax the hell out of everyone, then feed the money to their cronies, who in turn employ union members, who spend the money among the proles, and a trickle comes out for the "common man." You don't get into the union without knowing someone, and it's very hard to become a crony, so most of the rest of you will have to be equally poor so that those with power have enough people to be magnanimous towards. If you're nice to them they'll give you back a little bit of your money!

As for the new censorship on PJM, when it won't let you use words that are in the title of the article, something's rotten in Denmark, or here, or wherever...

I'm confused, dizzy, and disoriented, and that's without my daily ration of bourbon:

I thought the "Light Bearer/Lord and Savior" was the "peoples' president" who was going to put the evil bankers and other capitalists in their place and transform America into the fairest place on Earth or something. Why is it working out exactly the opposite? Why has banker wealth not been redistributed to us pee-ons as promised?

Could it be that The Smartest President Ever is indeed the monumental fraud I said he was back in 2008?

Thank you for pointing out the obvious, that most of the deficit Obama has been burying us under has gone to trying to re-inflate the real estate bubble, along with paying off cronies, i.e. GE, and snipe hunting successful "alternate energy" winners. Over six trillion in debt to accomplish absolutely nothing meaningful, other than paying off his supporters, which is only meaningful to the left.

Back in 1939, after 6 years of the New Deal ( which also included the Recession of 1937-38 ), Henry Morganthau, Franklin D. Roosevelt's Secretary of the Treasury, informed the House Ways and Means Committee that "after 8 years of this Administrationwe have just as much unemployment as when we started...And enormous debt to boot!" Recognizing this, what does the American public believe awaits us at the end of 8 years of the present Administration? Another World War to relieve it? Let's hope not.

Something that is completely overlooked by Obama and other liberals such as the Democratic party is that income disparity (e.g., having rich paople, poor people and middle class people) is essential to a work capitalistic society. If there are rich people, it will make those who are poor many cases motivated to better their positions in life. When there is no income disparity or when there is a robust welfare program, it robs the poor of any incentive to improve upon their position and they become lazy. I hesitate to write this because it seems so self evident.

First off, monetary stimulus doesn't make people feel richer, it makes the future expectation of the value of cash smaller. That means it makes more sense to buy things now, so people spend more.

Second, while it's true Bernanke is buying MBS to push down mortgage rates, this is a relatively small effect relative to what the government was already doing, and both are dwarfed by the colossal new pile of loan restrictions. The bubble cannot be re-inflated because investors will not get fooled into buying mispriced MBS again.

The real problem right now is that money is too tight (nominal interest rates are low because the environment is deflationary from the perspective of many economic actors; that's why companies are hoarding cash -- don't be fooled by the patchwork of guesses called CPI). How do we know that? Because the bond markets are still rallying and the stock market has developed a historically unusual correlation to monetary policy -- stocks are screaming "LOOSER MONEY MEANS GROWTH!!" right now to anyone who's listening.

Why is this happening? Because the Fed is still fighting the last war, inflation. They haven't changed the target. That's why despite all the QEs and Operation Twists, every long-term debt instrument still assumes low inflation as far as the eye can see.

The 2% inflation targeting policy no longer works. We need something like NGDP level targeting, which targets a real number rather than trying to boil down a multivariate, multidimensional largely subjective concept into one number, calling the result "inflation," and basing monetary policy on it, and naturally ameliorates bubbles and busts both.

The idea that we're under 2% inflation is another lie. (Figures don't lie, but liars figure a lot). At least for those at $50K a year or less, who spend a majority of their income on necessities- food, fuel, heating, rent, inflation is already well over 2%.

Stephen, back in Jan 2009, I was earning 5.0% interest on my online savings. I called it my vacation account. It has gradually dropped thanks to the Bernanke, so now I earn 0.1%. I call it my 12-pack account. When QE ends, the sharp correction will be devestating on a scale that I cannot fathom.

I'm emigrating later this year. Won't say where I'm going at this point, except to say that it's definite.

Suffice it to say that I know why the politicians refuse to allow industrial hemp to be grown on US soil, even though its THC content is too low to be noticeable. The idea of hemp brings up too many associations in the minds of those who have so much to fear from long overdue and well deserved public retribution.

This article recounts what I've always called the Democratic version of the trickle-down economics. They tax the hell out of everyone, then feed the money to their cronies, who in turn employ union members, who spend the money among the proles, and a trickle comes out for the "common man." You don't get into the union without knowing someone, and it's very hard to become a crony, so most of the rest of you will have to be equally poor so that those with power have enough people to be magnanimous towards. If you're nice to them they'll give you back a little bit of your money!

As for the new censorship on PJM, when it won't let you use words that are in the title of the article, something's rotten in Denmark, or here, or wherever...

I'm confused, dizzy, and disoriented, and that's without my daily ration of bourbon:

I thought the "Light Bearer/Lord and Savior" was the "peoples' president" who was going to put the evil bankers and other capitalists in their place and transform America into the fairest place on Earth or something. Why is it working out exactly the opposite? Why has banker wealth not been redistributed to us pee-ons as promised?

Could it be that The Smartest President Ever is indeed the monumental fraud I said he was back in 2008?